They have pointed out another recent unholy practice that a refund payment order (RPO) is now generated after the approval from the head of electronic system (ERS). Earlier, the ERS used to generate RPO and were sent for the issuance of cheque. "Why now approval is required from the head of the system makes no sense or makes a lot of sense if one is in the knowledge how things are done in the FBR," said one tax expert.
They said the refund on sales tax is actually the tax which the exporter has paid to its supplier and a RPO is generated only after verification. Majority of the tax experts have agreed that apart from other issues hurting exports, the refund payment is invariably and a horribly vicious circle that has trapped every exporter in the country. On the Income Tax refund side, said the experts, the FBR report for the year 2015-16 shows that the FBR had a stock of Rs 90 billion refund pending.
They said a buyer deducts a certain amount on almost every transaction, which is generally 3 to 4 percent as withholding tax and deposit it with FBR through withholding statement every month. Similarly, the manufacturers as well as the commercial importers pay withholding tax on the import of almost every commodity. The taxpayer is entitled to adjust tax already withheld and pay the balance amount towards the end of a year. Alternatively, the e-file refund claims in case withheld tax exceeds is tax liability.
The FBR has devised no electronic mechanism whereby it automatically refunds where the tax withheld has exceeded the liability, they said and added that when the claim is filed his withheld tax is verified through a laborious exercise where such data is electronically available.
In case, the tax payer is lucky enough to pay services charges which generally are informally fixed at 10 percent and he gets his refund. There is a misconception that refund is some kind of concession or subsidy whereas it is the amount which the taxpayer has already paid. It is very painful for a genuine taxpayer to get income tax refund. "Smarter" if he is, earlier gets the refund.
On the Sales tax side, they said, refund accrues where the finished goods are zero rated, or exported. In another case, where he has paid the refund which was not payable and appellate forum or judiciary orders for such amount which was not due to the department. Such claims are filed under section 66 of Sales Tax Act. In most of the cases, refunds filed under section 66 remain dumped unless heavy cost is given to the functionaries to clean the dust and retrieve the refund files and process them for payment.
On zero rated as well as export, the goods which are used in the manufacturing of finished goods are liable to be zero rated. Since sales tax operates in the VAT mode, the tax on the raw material is paid at different stage of supply chain. The FBR claims to have developed technology which could verify tax paid at various stages of supply chain. Under the sales tax law, the refund is to be paid within 45 days after the solution of completion refund claim. However, after 2013, it takes ages before refund claims are paid.
There are certain items which the exporter buys from the open market and for which invoice is not available. All such things are manufactured in the informal sector. In order to compensate exporters, nominal amount is refunded as duty drawback by the customs authorities. Such duty drawback is paid once the sales proceeds are received and confirmed by the SBP. Again, delays complaint and act of impropriety are reported for the payment of nominal duty drawbacks.
Copyright Business Recorder, 2017